One of the questions we get asked most often when we are out and about is “Is it worth me pursuing this debt with all the costs involved?”
It’s not an easy question to answer. To some people, £500 is a lot of money, but to others, they are happy to walk away and write the debt off.
Starting at the beginning, a good value Solicitor’s Demand Letter can often be all that you need to get your customer to pay. It shows you mean business and is often enough to ‘wake up’ your debtor into paying. Solicitor’s Demand Letters can cost as little as £5+VAT, so for most debts we see, it’s a great and often productive first shot.
For other debts that are harder to recover, issuing court proceedings and obtaining a judgment against the customer is the only way to make them pay. But how much will it cost you to do this?
As a rule of thumb, we would recommend not spending more than the value of the debt on recovering it. As a guide, a debt of between £300 and £500 will cost £155 plus VAT in standard fees to get into court, and if it is defended, it is likely to cost a lot more.
It is worth noting that at the time of writing, only debts that exceed £600 can be transferred up to the High Court and enforced by High Court Enforcement Officers. High Court Enforcement Officers are officers of the High Court of England and Wales responsible for enforcing judgements of the High Court, often by seizing goods or repossessing property. They are paid on a commission basis and are often self-employed.
For debts under the £600 threshold, we can enforce only using the County Court. However, due to the County Court receiving so many instructions it can in fact be a slower way of recovering any money owed at the present time. County Court bailiffs are salaried and have a year to undertake three visits to try to recover the debt.
Having said all of this, a solid credit control procedure can be all that is required to avoid the need for debt recovery altogether. So what does this look like?
When a potential client comes to you, they may be very keen to get things moving, but you still need to get the paperwork right. It should be your first priority to set out clearly your payment terms in your contract conditions, particularly in respect of requesting a deposit with any booking.
A word of warning in the event of non-payment - if you’re pursuing a consumer rather than a business. If it’s not a commercial debt, you won’t have the protection of the Late Payment of Commercial Debts (Interest) Act 1998, so it’s advisable to specify terms that allow for interest, compensation, and payment of legal costs in the event of non or late payment.
Our view is that in most cases it is worth pursuing your debts. Ideally, your credit control procedures and terms and conditions mean you will not have any issues, but if you do, speak to a professional who will advise you on the options.